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SA catalytic converter industry dying despite platinum wealth

South Africa's catalytic converter industry is dying: Wadeville-based Exhaust Systems closes down its SA production within next two weeks...

And other companies manufacture at 50% capacity:

Exhaust Systems in Wadeville, Germiston says Europe is losing confidence in SA with its strikes...

February 18 2014 - Exhaust Systems in Wadeville near Germiston halts its South African production at the end of February 2014. Exhaust Systems is part of the world-famous, high-tech and very influential multinational Magneti Marelli company in Italy. It just announced that it shuts down its South African factory at the end of April. 92 people in Wadeville will lose their jobs. The company basically blames the ANC-regime's taxation policies and its high export-transport costs for taking its plant out of South Africa.

At the moment South Africa's catalytic converter factories already produce half of what they did twenty+ years ago -- when the previous government's incentives kick-started a multi-billion Rand local manufacturing industry employing 5,200 highly-skilled people...

Putting the plants near the platinum mines seemed so very logical: South Africa has about 75% of the world’s platinum-group metals required for making catalytic converters - and also (still) is the world’s largest producer of platinum, with Russia second.

Yet despite the fact that the SA catalytic converter industries are sitting right on top of all this incredibly wealthy potential platinum resource - the country's catalytic converter industry is dying (under the current regime), warns National Association of Automotive Component and Allied Manufacturers ' executive director Robert Houdet.

The link between platinum metals and catalytic converters:

A catalytic converter requires platinum and similar metals - it's a device incorporated into a vehicle’s exhaust system, containing a catalyst for converting pollutant gases into less harmful ones. It makes use of platinum-group metals (the sonamed PGMs).

The Magneti Marelli company employed 92 people in Wadeville. Engineering News Online was told by its general manager Claudio Di Martina on February 18 2014 that the facility was closing down by the end of April because 'the SA company is not competitive enough to receive any more export contracts from Europe”.

-- Said Di Martina: "Magneti Marelli South Africa found itself unable to compete under the SA government’s new Automotive Production and Development Programme (APDP), implemented in 2013. The new rebate system had disadvantages for us, and for the rest of the catalytic converter industry too, I believe.” Di Martina says it is largely vehicle manufacturers that benefit from the APDP, and not the component industry.

I couldn't even cover my export transport costs...some of the world's highest. And Europe is nervous about that seven-week-long strike... '

“I couldn’t even cover my export transport costs.” Di Martina adds that South Africa’s logistics and transport costs are “some of the highest in the world”.

He notes that last year’s seven-week strike in the automotive industry also made “Europeans nervous about the stability of the South African economy”: “The exchange rate is favourable for exports,” he adds, “but not for material imports”. The Rand has weakened sharply against the major currencies over the last six months. http://www.engineeringnews.co.za/topic/claudio-di-martina

"Catalytic Converter industry in SA is dying," - warns top executive of the national association of automotive component and allied manufacturers, Robert Houdet.

The total catalytic converter exports from South Africa dropped from R19.6-billion in 2011 (almost 50% of all component exports) to R16.3-billion in 2012. Catalytic converters remained South Africa’s number one component export in 2012. In 2008 at its peak, the local industry earned R24.3-billion. It employed around 5,200 people. South Africa has about 75% of the world’s platinum-group of metals reserve: it's the world’s largest producer of platinum, with Russia second. Yet despite these riches, the local catalytic converter industry is dying, says National Association of Automotive Component and Allied Manufacturers (Naacam) executive director Robert Houdet.

“The APDP (the government's kick-back system) cannot ensure its sustainability. We need to take it out of the APDP and go the Department of Mineral Resources (DMR) to try and set up a programme for catalytic converter manufacturers - one where they can benefit from the fact that they beneficiate PGMs.”

(Non-ANC-speak: The catalytic converter companies use platinum products from local mines).

Former Naacam executive director Roger Pitot said in 2012 that the benefits offered to local component manufacturers would be lower under the APDP than under the previous government's MIDP programme. He also noted at the time that 'some global vehicle manufacturers had not renewed their contracts for the supply of catalytic converters from South Africa. "

It takes three years to kick-start a new catalytic converter plant:

Finding a solution to the lack of global competitiveness of the catalytic converter industry “is a matter of urgency,” says Houdet. The decision to set up a catalytic converter plant is taken around three years in advance.

“For production of catalytic converters to still take place in South Africa three years from now, we need to be able to make a competitive offer right now, otherwise we will lose out. We have to move fast, and make sure we change people’s minds, because they are already ruling South Africa out as a possible manufacturing destination.”

So adding a new tax for 'manufacturing' platinum metals will make it better?

"To ensure the survival of the catalytic converter industry"- Houdet proposes that "government charges a production tax on all PGMs produced in South Africa." He uses the following flawless logic:

“Nobody says we cannot increase our prices. The mining company can add the tax as an item on the invoice when charging their customers. The Middle East had similar policies when they controlled the world’s oil resources in the 1970s and Mozambique is mulling increasing its coal royalty tax. Everyone is doing it.

“We have platinum. This is a once in a lifetime opportunity and government must have the courage to implement this tax.

“The production tax will serve as an incentive to manufacture catalytic converters in South Africa, as local manufacturers could either receive a tax rebate, or see the tax eliminated through some local value-add formula”.

Houdet also was quoted as saying that the catalytic converter industry "would ask for only a small part of the production tax, with the rest going to the SA treasury: we need to make this the cheapest place to produce catalytic converters. Such a move would also benefit the stainless steel industry.”

The government official statement:

The catalytic converter industry in South Africa developed predominantly on the back of the previous government's Department of Trade and Industry’s MIDP incentive scheme - which was discontinued in 2013, says the Department's ' automotive chief director ' Mkhululi Mlota. "This is because government’s financial incentive for exported production was based predominantly on the value of local content, including material. This meant the relatively high platinum value found within a converter provided a high level of reward compared with the level of actual manufacturing value-add", explains Mlota.

For the Greater Unwashed Masses who are not privy to the intricacies of ANC-speak, we translate:

(In non-ANC speak: Platinum is a very expensive metal and the SA regime is now taxing the exported catalytic convertors based on the market value of the precious metal inside --- instead of taxing the value of the actual finished product converters are being sold at... )

During the roughly two decades of the previous government's MIDP rebate-system, the South African catalytic converter sector peaked at around 16% of global production.

The government official said the current system is being re-analysed - at least we thínk that's what he may have said - anyhow this is how he put it to Engineering News - clear as mud:

"The dynamics examined will include vulnerable sectors, and the implications for any changes to their circumstances. “Further, other, cross-governmental, non-APDP support measures need to be explored, especially in terms of the supply-side factors faced by catalytic converter producers. Under present material cost conditions, there is no geographic benefit to beneficiating platinum close to its source.”

The fine art of recognizing Communist Party propaganda

In October 2013 one of SA's top communist party executives, the country's disastrous Trade and Industry Minister Rob Davies, was quoted as saying that their system of APDP, implemented on January 1, 2013, and running until 2020, "would be the subject of an early review, and that: "... the aim of the early review would be to “create conditions of confidence” for the automotive industry in South Africa. "We are all committed to work together to ensure our industry has a bright future.”

Indeed, the fine art of recognizing Davies' communist party sloganeering is crucial to the survival of private businesses and foreign investors in South Africa. It's a minefield of disinformation.

Some industry-captains say that Magneti Marelli 's closing down isn't all that important anyway: for instance the catalytic converter interest group's executive Ken Dewar: 'it is a smaller player in the South African catalytic converter industry and now some of the bigger players are getting new contracts." General Motors South Africa, in partnership with component manufacturer Tenneco South Africa, last year clinched a R6-billion contract to export catalytic converters to North America.

"However this said...' Dewar added, he 'knows of yet another manufacturer “potentially closing down” and then adding: “We have seen the benefits to the industry shrink under the MIDP, and they continue to do so under the APDP.” Dewar says the CCIG would like government to put this decline in benefits on hold. If not, our industry will die.”

More ANC-speak -- but the bottom line is that a lot of SA manufacturers of catalytic converters now produce 50% of what they did when it was kick-started some twenty+ years ago...

A new proposal is now headed to the DMR, DTI and the SA Cabinet, Dewar was quoted as telling Engineering News.

"We can double or triple the amount of PGMs we beneficiate if we can receive more benefits, such as through a production tax,” says Dewar. “No other industry in South Africa beneficiate PGMs. The South African catalytic converter industry produces 10-million converters a year. We do not expect to do more in 2014.

At the current rate we see the industry declining by 5% a year over the next three to four years,” says Dewar. “A lot of the manufacturers are currently working at 50% capacity.”

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